Question 1

Which of the following is true regarding significant deficiencies in internal control?

Accepted Answer

A)  Auditors must search for them. 
B)  Auditors must communicate them to management and to those charged with governance. 
C)  They must be included in the financial statements. 
D)  They must be disclosed in footnotes.

Question 2

Which of the following inquiry or analytical procedures ordinarily is performed in an engagement to review a nonissuer's financial statements?

Accepted Answer

A)  Analytical procedures designed to test the accounting records by obtaining corroborating evidential matter. 
B)  Inquiries concerning the entity's procedures for recording and summarizing transactions. 
C)  Analytical procedures designed to test management's assertions regarding continued existence. 
D)  Inquiries of the entity's attorney concerning contingent liabilities.

Question 3

Which of the following internal controls most likely would be used to maintain accurate inventory records?

Accepted Answer

A)  Perpetual inventory records are periodically compared with the current cost of individual inventory items. 
B)  A just-in-time inventory ordering system keeps inventory levels to a desired minimum. 
C)  Requisitions, receiving reports, and purchase orders are independently matched before payment is approved. 
D)  Periodic inventory counts are used to adjust the perpetual inventory records.

Question 4

On receiving a client's bank cutoff statement, an auditor most likely would trace:

Accepted Answer

A)  Prior-year checks listed in the cutoff statement to the year-end outstanding checklist. 
B)  Deposits in transit listed in the cutoff statement to the year-end bank reconciliation. 
C)  Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist. 
D)  Deposits recorded in the cash receipts journal after year-end to the cutoff statement.

Question 5

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

Accepted Answer

A)  The investment committee of the board of directors periodically reviews the investment decisions delegated to the treasurer. 
B)  Two company officials have joint control of marketable securities, which are kept in a bank safedeposit box. 
C)  The internal auditor and the controller independently trace all purchases and sales of marketable securities from the subsidiary ledgers to the general ledger. 
D)  The chairman of the board verifies the marketable securities, which are kept in a bank safe-deposit box, each year on the balance sheet date.

Question 6

To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into:

Accepted Answer

A)  Net sales. 
B)  Cost of goods sold. 
C)  Operating income. 
D)  Gross sales.

Question 7

The primary reason an auditor requests letters of inquiry be sent to a client's attorneys is to provide the auditor with:

Accepted Answer

A)  The probable outcome of asserted claims and pending or threatened litigation. 
B)  Corroboration of the information furnished by management about litigation, claims, and assessments. 
C)  The attorneys' opinions of the client's historical experiences in recent similar litigation. 
D)  A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

Question 8

In which case might an auditor of an issuer render a qualified opinion on internal control?

Accepted Answer

A)  When there is a scope limitation. 
B)  When there is a material weakness in internal control. 
C)  Both "a" and "b". 
D)  Neither "a" nor "b".

Question 9

Which of the following procedures most likely would not be an internal control designed to reduce the risk of errors in the billing process?

Accepted Answer

A)  Comparing control totals for shipping documents with corresponding totals for sales invoices. 
B)  Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. 
C)  Matching shipping documents with approved sales orders before invoice preparation. 
D)  Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Question 10

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided the:

Accepted Answer

A)  Provisions of Statements on Standards for Accounting and Review Services (SSARS) are followed. 
B)  Accountant also examines the prospective financial statements. 
C)  Distribution (use) of the report is restricted to the specified users. 
D)  The accountant takes responsibility for the adequacy of the procedures performed.

Question 11

In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the:

Accepted Answer

A)  Tolerable deviation rate. 
B)  Risk of incorrect acceptance. 
C)  Nature and cause of deviations. 
D)  Population size.

Question 12

As the acceptable level of detection risk decreases, the assurance directly provided from:

Accepted Answer

A)  Substantive tests should increase. 
B)  Substantive tests should decrease. 
C)  Tests of controls should increase. 
D)  Tests of controls should decrease.

Question 13

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

Accepted Answer

A)  A lawsuit is resolved that is explained in a separate paragraph of the prior-year's auditor's report. 
B)  New information is discovered concerning undisclosed related party transactions of the prior year. 
C)  A technological development occurs that affects the entity's ability to continue as a going concern. 
D)  The entity sells a subsidiary that accounts for 35% of the entity's consolidated sales.

Question 14

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the:

Accepted Answer

A)  Factors that raise doubts about the auditability of the financial statements. 
B)  Operating effectiveness of internal control activities. 
C)  Risk that material misstatements exist in the financial statements. 
D)  Possibility that the nature and extent of substantive tests may be reduced.

Question 15

Davidson, CPA, is performing a review under auditing standards of Gold's interim financial information. As part of planning, Davidson reads the audit documentation from the preceding year's annual audit. Which of the following is least likely to affect Davidson's review?

Accepted Answer

A)  A summary of both corrected and uncorrected misstatements. 
B)  Identified risks of material misstatement due to fraud. 
C)  Significant weaknesses in internal control. 
D)  Scope limitations that were overcome through acceptable alternative procedures.

Question 16

In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 17

In auditing payroll, an auditor most likely would:

Accepted Answer

A)  Verify that checks representing unclaimed wages are mailed. 
B)  Trace individual employee deductions to entity journal entries. 
C)  Observe entity employees during a payroll distribution. 
D)  Compare payroll costs with entity standards or budgets.

Question 18

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that:

Accepted Answer

A)  Irregularities exist among the relevant account balances. 
B)  Internal control activities are not operating effectively. 
C)  Additional tests of details are required. 
D)  The communication with those charged with governance should be revised.

Question 19

An auditor decides to issue a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to:

Accepted Answer

A)  A client-imposed scope limitation. 
B)  A departure from generally accepted auditing standards. 
C)  The possible effects on the financial statements. 
D)  Inadequate disclosure of necessary information.

Question 20

The authoritative body designated to promulgate standards concerning an accountant's association with unaudited financial statements of an entity that is not required to file financial statements with an agency regulating the issuance of the entity's securities is the:

Accepted Answer

A)  Financial Accounting Standards Board. 
B)  General Accounting Office. 
C)  Accounting and Review Services Committee. 
D)  Auditing Standards Board.

Exam 1: CPA Auditing and Attestation Exam